Franchises Play Vital Role in U.S. Economy

Franchise businesses make up more than 10 percent of all U.S. businesses that have employees, according to a new survey. The survey, the 2007 Economic Census Franchise Report, is the result of cooperation between the U.S. Census Bureau and the International Franchise Association (IFA) and is the first detailed and comprehensive report on this segment of the U.S. economy.

The Census Bureau report was based on data collected from 4.3 million total businesses with paid employees. Of that number, 453,326 were either franchisee- or franchisor-owned businesses. The franchise businesses accounted for nearly $1.3 trillion of the $7.7 trillion in total sales for these industries, $153.7 billion of the $1.6 trillion in total payroll and 7.9 million workers out of a total work force of 59 million.

The concept of collecting this data was the result of a partnership between the Census Bureau and the IFA that focused on better measuring the role of franchising in the economy. Earlier economic censuses included a question on franchising for only two industries, limited service and full-service restaurants.

“The understanding we gain from these statistics about what impact franchise businesses have on the U.S. economy is a good example of how government and business can partner to provide relevant, quality data to the business community,” said Tom Mesenbourg, deputy director of the Census Bureau.

“Franchising plays a vital role in our nation’s economy; it’s one of the big engines driving new job creation,” said David French, vice president of government relations for the IFA. “These new data offer critical information to entrepreneurs who may be considering starting a franchise business.”

Franchisee-owned establishments accounted for 77.4 percent of all franchise businesses, with $1.1 trillion in sales, $125 billion in annual payroll and employing nearly 6.3 million workers. Franchisor-owned operations made up 22.6 percent of franchise businesses, with $210.4 billion sales, $28.6 billion in annual payroll and 1.6 million workers.

Fast-food restaurants, categorized as limited service restaurants by the Census Bureau, topped the list of all franchise operations with 125,898 establishments. They were followed by gas stations with convenience stores, 33,391, and full-service restaurants, 30,130.

New car dealers led in sales for franchise businesses with $687.7 billion, followed by gas stations with convenience stores, $131.1 billion, and fast-food restaurants, $112.6 billion.

Though the restaurant industry may be the lead dog for the franchise sector in terms of the number of outlets, it lags in another respect — the number of women who own fast-food franchises. According to a 2002 IFA study on gender ownership, only 13.2 percent of franchised restaurants are owned by women.

“There are three main factors contributing to the lack of women restaurant franchise owners: the functional background required of owning and operating a restaurant franchise; difficulty in securing the needed financing and the psychological factors that may serve as a barrier from pursuing a franchise path,” said Kim Mathe, a consumer insights analysts for Sonic, the nation’s largest chain of drive-in restaurants.

“And that is unfortunate, because women-owned franchises are likely to be profitable because studies have shown women to be more caring, cleaner and customer conscious, which is vital to attracting repeat business,” she said.

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.